Tax avoidance and tax evasion
In recent years tax avoidance has been the subject of considerable public concern, although there is no statutory definition of what tax avoidance consists of. Tax avoidance is to be distinguished from tax evasion, where someone acts against the law. By contrast tax avoidance is compliant with the law, though aggressive or abusive avoidance, as opposed to simple tax planning, will seek to comply with the letter of the law, but to subvert its purpose.
HM Revenue & Customs publishes annual estimates of the tax gap, the difference between tax that is collected and that which is ‘theoretically due’. In September 2021 HMRC published revised estimates, which put the tax gap at £35 billion for 2019/20, representing 5.3% of total tax liabilities. It is estimated that in 2019/20 the financial loss from tax avoidance was £1.5 billion, while the cost of tax evasion was £5.5 billion.
In recent years concerns as to the scale of mass marketed tax avoidance schemes have led to three major initiatives to undermine this market and encourage a sea change in attitudes:
- the Disclosure of Tax Avoidance Schemes regime (DOTAS) in 2004
- the General Anti-Abuse Rule (GAAR) in 2013; and,
- the system of follower notices and accelerated payments notices in 2014.
The Government has continued to introduce provisions to tackle tax avoidance and tax evasion, including measures in each successive Budget.
This Commons Library briefing discusses the incidence of tax avoidance and evasion, before looking in detail at the development of follower notices and acclerated payment notices, and further initiatives to reduce the tax gap.
A second Commons Library briefing looks at the introduction of the 2019 Loan Charge, legislation to tackle mass marketed ‘loan schemes’ announced in the 2016 Budget, which has proved highly controversial. Two other Commons Library briefings look at the Labour Government’s consideration of a general anti‑avoidance rule and the establishment of DOTAS, and at the Coalition Government’s decision to introduce a GAAR.